All posts in category Crisis on Wall Street

Today’s Writing on the Wall column takes a look at Warren Buffett’s investment in Bank of America and suggests the deal creates more questions than confidence. The column suggests five questions regulators, bankers, investors and the public should be asking about the future of the financial system.

William Black

But what about the most recent crisis? Aren’t there unanswered questions?

Yes, and William Black, the former savings and loan regulator during the industry’s crisis in the late 1980s, has some. Black , now a professor at the University of Missouri Kansas City, is a leading critic of the bank industry and what he sees as a failure of regulation leading to the financial crisis.

What follows is what Black sees as three nagging questions from the banking crisis:

Georgia leads the nation in bank failures this year with 12, more than double the amount in Florida, which has the second most. Overall, the three failures bring the total number in the U.S. this year to 43.

In Georgia, regulators closed Atlantic Southern Bank of Macon and First Georgia Banking Co. of Franklin. Both institutions are being taken over by CertusBank, based in Easley, S.C.

Atlantic Southern Bank had about $741.9 million in assets and $707.6 million in deposits as of the end of March. First Georgia Banking Co. had assets of $731 million and deposits of $702.2 million. Together, the failed banks had 26 branches.

In Washington state, regulators closed Summit Bank. The Burlington institution is to be taken over by Columbia State Bank of Tacoma. Summit Bank had $142.7 million in assets and $131.6 million in deposits at the end of the first quarter.

The FDIC estimated that the cost of the failures to the Deposit Insurance Fund will be $445.7 million.

Click on the image below to see the WSJ’s graphic tracking bank failures:

Deutsche Bank, HSBC Holdings and J.P. Morgan Chase have led the recovery of financial brands following the crisis, while Goldman Sachs Group’s image has continued to suffer, according to a survey of the top 500 business brands released today.

The Business Superbrands Top 500, which is released every February, ranks companies based on the opinions of 2,000 U.K. business professionals quizzed by YouGov.

HSBC was the highest-placed banking brand in this year’s rankings, rising six places to No. 35. But the most impressive comeback was by J.P. Morgan, which jumped to No. 94 from 244 last year. The New York bank, which bought Bear Stearns for a knock-down price in 2008, has emerged from the recession stronger than many of its rivals.

Deutsche Bank also broke into the top 100 this year, moving to No. 80 from No. 146.

But some of the gilt has worn off the House of Goldman. Three years ago the New York investment bank was among the top 50 brand. But it has fallen for two successive years and is now No. 113 in the latest survey, just below engineering firm Massey Ferguson…..

Regulators closed just one bank on Friday, bringing the total number of failures this year to 23. The FDIC said Valley Community Bank of St. Charles, Ill., was closed by the Illinois Department of Financial and Professional Regulation–Division of Banking, which appointed the FDIC as receiver. It entered a purchase-and-assumption agreement with First State Bank of Mendota, Ill., to take over the failed bank. Valley Community Bank had about $123.8 million in total assets and $124.2 million in total deposits with five branches as of the end of last year. The FDIC estimated that the cost of the failure to the Deposit Insurance Fund will be $22.8 million. Click on the image below to see the WSJ’s graphic tracking bank failures:

Just in case you missed it, Assange doesn’t care much for global corporations. In July, Assange boasted of “many submissions” coming to Wikileaks on BP. “We haven’t published those yet, but they’re coming. Some of these have already begun to surface in the mainstream press.”

Assange’s anti-corporate views were put down for posterity in a 2007 blog post for his immodestly named website IQ.org, now archived here. There he compared corporations to nations and somehow determined that the capitalist venture that is a corporation is a minisoviet. Here is the logic, as he put it back then:

The corporation as a nation state has the following properties:

* Suffrage (the right to vote) does not exist except for land holders (“share holders”) and even there voting power is in proportion to land ownership.
* All executive power flows from a central committee. Female representation is almost unknown.
* There is no division of powers. There is no forth estate. There are no juries and innocence is not presumed.
* Failure to submit to any order can result in instant exile.
* There is no freedom of speech. There is no right of association. Love is forbidden without state approval……

Here are profiles of some of the winners, losers and new faces among the politicians now in charge of reforming Wall Street.

The winners:

• Spencer Bachus, most senior Republican on the House Financial Services Committee
The 62-year old lawyer from Alabama is the favorite to take over as chairman of the committee though he faces a challenge by senior Republican Ed Royce, according to this WSJ article, and Jeb Hensarling could toss his hat in the ring, according to Reuters.

Bachus has said he wants to repeal certain portions of the Dodd Frank Act, including the resolution authority and the Volcker Rule. Jim Hamilton, principal analyst at Wolters Kluwer Law & Business, wrote on his blog: “Bachus at times has demonstrated a willingness to cooperate with Democrats. He got in hot water with his own leadership, for example, by bargaining away too much during negotiations over the Wall Street bailout in 2008.”

•Tim Johnson, second-ranked Democrat on the Senate Banking Committee
With Democrats keeping control of the Senate, Johnson will succeed Chris Dodd as chairman of the Senate Banking Committee. ….

In Missouri, regulators closed Premier Bank of Jefferson City. Providence Bank agreed to purchase $657.9 million of Premier’s $1.18 billion in assets and assume all of the failed bank’s $1.03 billion in total deposits, except for certain brokered deposits.

WestBridge Bank & Trust Co. of Chesterfield, Mo., also was seized on Friday, and its $72.5 million in deposits were assumed by Midland States Bank in Effingham, Ill.

The failures were the fifth and sixth in Missouri this year.

In Kansas, the Office of Thrift Supervision closed Security Savings Bank in Olathe, and the FDIC arranged for Simmons First National Bank in Pine Bluff, Ark., to assume its $397 million in deposits. The failure was the second in Kansas this year.

In a Congressional hearing last month, SEC Inspector General H. David Kotz was pressed about worries over how the agency handled its fraud lawsuit against Goldman Sachs Group and the subsequent settlement.

In April–a week before the Senate was considering financial-regulatory legislation–the SEC sued Goldman and a trader, Fabrice Tourre, for misleading investors in the sale of a mortgage product. In July, just as the Senate passed the financial overhaul bill, the SEC and Goldman reached a $550 million settlement. Hmmm.

Bloomberg News

Either the timing of the SEC lawsuit was “suspicious” or it was hunky dory, according to Inspector General H. David Kotz.

Members of Congress have said the timing was selected for maximum political effect. At the hearing, Kotz seemed to lend credibility to the conspiracy buffs who believe something is rotten in the state of Denmark.

“It would strain credulity to think it was coincidental,” Kotz said, referring to the timing of the fraud lawsuit, according to the Wall Street Journal’s account. He added: “I can’t give you a conclusion right now, but it was suspicious.”

But three weeks after ringing the alarm, Kotz’s has changed his tune….

When the Office of Thrift Supervision seized Washington Mutual two years ago this month, it justified the nation’s largest-ever bank failure by saying WaMu was “likely to be unable to pay its obligations” amid a $22 billion, two-month run on deposits and had “no realistic chances for raising new capital.”

A document obtained via a Freedom of Information request shows how forcefully executives resisted these arguments until the very end.

That contraction would have both an upside and downside. While it represents a necessary cleansing of the financial system, it also is an enduring threat to capital, lending and the health of the economy.

Click on the image below to see the WSJ’s revamped graphic tracking bank failures. The graphic now lets readers sort banks by total assets, deposits, number of branches and state:

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Dealpolitik is Ronald Barusch's strategic look at deals currently making the headlines as well as the major forces at work in the deal-making world. He was a M&A lawyer with Skadden, Arps, Slate, Meagher & Flom for over 30 years. He retired in 2010 after 25 years as a partner at the firm. Click here for his current and archived columns.